A few of us have forgotten about the “I” word. You know, the one that was around in the 1970s and 80s. In those days it peaked at 15-20 per cent per year.

We haven’t had much cause to worry about it for the last 30 or so years. Central banks worked out how to manage it. As a result, they have kept it under control ever since.

But if they were ever to lose that control, the next couple of years might be telling.

The “I” word is “inflation”. And countries around the world are in the middle of a dangerous experiment. Here in New Zealand we seem quite happy to go along for the ride and play our part too.

The experiment in question? We’re playing with the very things that have historically led to dramatic increases in inflation.

Inflation has traditionally been described as the outcome of too much money chasing too few goods. In other words, demand for goods and services exceeds available supply of those same goods and services. As a result, prices increase.

At the moment, the layman in me sees a “perfect storm” for inflationary impact.

First, the supply of goods has been constrained by a combination of Covid-enforced factory closures around the world and problems with global shipping, causing freight congestion and delivery delays. In other words, there is a shortage of products and services hitting the marketplace.

That global shipping fallout inevitably impacts freight costs, which have gone through the roof in recent months. As a small country a long way away, we’re getting hammered.

At the same time, central banks, ours included, are printing money and pushing it into their economies at record low interest rates, in an effort to re-float a global economy that would otherwise stall due to the shutdowns and travel bans. Of course, this results in greater spending power, so demand increases.

Here in New Zealand there’s another factor playing its part in the storm. Businesses have had a wave of additional costs to factor into their operational model. The minimum wage has been increased substantially over the last three years. That’s a good thing. But in a low-productivity economy, the timing is lousy.

Add to that the impact of other Government decisions which increase the costs associated with compliance, leave entitlements and the like, and sooner or later businesses will have to recover some of those outgoings.

And guess how they do that? Sooner or later they will have to put prices up. In my experience, businesses don’t have to have reasons for price increases. But it helps.

As more and more commentary featuring the “I” word creeps into news reports and economic discussions, as it has in recent months, business owners globally will feel they have permission to push increases through.

And as bottlenecks pile up, space on container ships becomes more and more valued, and Joe Biden’s US$1.9 trillion stimulus reaches the American people, it would not be a major surprise if those pricier goods made their way to North America via the more reliable shipping routes, rather than here. Again, our supply becomes limited as prices rise.